Same Players, Different Rules: FMC examines shipping alliances

Members of the U.S. Federal Maritime Commission met with regulators from China and the European Commission on Tuesday as all three review plans by container shipping companies to form new or expanded mega-alliances.
While most of the discussions were held privately by the regulators, FMC Chairman Mario Cordero and members of the delegations from China and Europe spoke briefly about their regulatory summit publicly at the end of the day and in interviews with members of the press.
The summit was early on billed as a global regulatory summit on the P3 Alliance, but was a general discussion of shipping regulation.
Cordero, a self described Los Angeles Dodgers fan, compared the meeting to a group of baseball umpires from different leagues meeting and talking with each other.
“We did not make any calls today; no one was thrown out of the game. Our respective leagues have different rules, but we have the same players,” he noted.
Cordero said he called the summit “given the rapidly changing face of the maritime sector, which demands out of the box thinking.”
Maersk, MSC and CMA CGM, the world’s three largest container liner companies, announced in June plans to form the P3 alliance, a vessel-sharing partnership, which they hope to implement in the second quarter of next year.
Since then, the so-called G6 vessel-sharing alliance has announced plans to expand into the Asia-West Coast and the transatlantic trades in the second quarter of 2014 in addition to the Asia-Europe and Asia-East Coast trades, where the G6 carriers (APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK and OOCL) cooperate today.
“Scope and size of changes taking place require that governments dialogue and share their views on global regulatory challenges and impacts on the industry,” said Cordero.
He also noted an executive order issued by President Obama last year encouraged international regulatory cooperation.
The objective of the meeting was for the different country’s agencies to share expertise and gain insight from each other, and that objective was met, said Cordero.
Li Hongyin, deputy director-general of the Bureau of Water Transport, Ministry of Transport, headed up the Chinese delegation. Alliances such as the P3 are reviewed by both the Ministry of Commerce and Ministry of Transport in China.
Jason Wang, secretary of the Shanghai Shipping Exchange, who also acted as translator for Li, said the Chinese government, like the FMC, has asked the P3 carriers for additional information as part of its review.
Li said that “Chinese shippers are very concerned about this mega alliance” and that the ministry has gotten some feedback from the China Shippers Association.
(Earlier this month, the Asian Shippers Council stated that the one of its members, the China Shippers Association, has raised concerns with Chinese regulators including the State Development and Reform Commission, the Ministry of Transportation and the Ministry of Commerce, "asking them to intervene to block the formation of P3 in accordance with China's antitrust law.")
Li said the Ministry of Transport requests the P3 and other carriers to file their vessel sharing agreements, rate agreements and other agreements with the ministry, and that “no alliance is allowed to damage fair competition. If we get complaints from other market players, we can start an investigation immediately.
“According to Chinese law, if the alliance has a market share exceeding 30 percent for one individual trade lane for one consecutive year, we will also start our investigation.”
Li said that his personal understanding was that there is no quantitative standard for determining “damage,” but that his view was that if an alliance can to some extent control the rates of one trade lane, that would be deemed as damage and harmful to other market competitors.
COSCO, China’s largest shipping company, is a member of the CKYH alliance with with “K” Line, Yang Ming and Hanjin. Asked if the CKYH alliance might expand to be on a more equal footing with the P3 or G6 alliance, Li said such a decision would not be made by the government — “whether to form an alliance or expand an alliance is completely decided by the enterprise itself.”
The EU delegation was led by Hubert de Broca, head of unit for the Directorate General for Competition, Antitrust-Transport, Post and Other Services, and also included a policy officer from the Directorate General for Transport.
De Broca said while the competition directorate has launched an investigation in the “price signaling” by container carriers, that review is totally separate and unrelated to its review of the P3.
He explained that liner shipping consortia have antitrust immunity under European law if they have less than a 30-percent share, but if consortia have more than a 30-percent share, they are subject to closer scrutiny.
"That does not mean it becomes illegal automatically,” he emphasized, "only that the members of the consortia don’t have the benefit of an automatic exemption.”
BlueWater Reporting estimates that the P3's weekly allocated capacity will be 43 percent of the Asia-North Europe trade and 41 percent o the North Europe-North America trade.
Section 6(g) of the Shipping Act of 1984 set up a standard under which the FMC may may seek an injunction against an agreement if it finds it is “likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost….”
De Broca said Section 101 of the European treaties, while using different language, has a similar purpose.
He said while there are “clear differences in terms of processes,” for reviewing alliances in the U.S., China and Europe, “I think the meeting of today shows, despite these differences, we all have to answer the same questions.”
In the U.S., alliance agreements go into effect automatically in 45 days unless the FMC seeks an injunction or effectively “stops the clock” as it has done in the case of the P3 by asking for additional information.
Under European Law, carriers are free to begin operating jointly at any time, but incur the possible risk that regulators may find a consortium illegal.
He said yesterday’s meeting and possible future meetings “are not forums to discuss particular deals. In the end, we have different rules, and we have to do our assessment on our own. If there is a follow-up, and I hope there will be one, it is more to share our knowledge of the sector and views of the possible future for the sector, and where it will be going from now on, will there be more concentration in the market.”
DeBroca emphasized that the competition is only collecting information from the parties and stakeholders to see if there are any concerns that should lead it to an investigation.
DeBroca said the process for antitrust regulators in Europe to make a decision is an lengthy one, one that can take a months or even more than a year.
If, for example, it was to decide that a liner consortia agreement violated European antitrust regulations, it would have to produce a reasoned decision that carriers could then appeal to a court.
“It is very different from a system with what you do is raise concerns to go to a court," he said.
If the competition directorate was to feel an alliance violates competition law, it would first issue a document called a statement of objections, which is not public, but is sent to all the involved companies, explaining all of its concerns. The companies would then have a right to respond in writing and have a hearing.